The financial crises of the 1990s led to renewed interest in the statistical treatment of
non-performing loans. The purpose of the review is to determine what criteria should be
applied in the SNA to the writing-off of non-performing loans and to make sure that they
are consistent with the other major macroeconomic statistical systems (balance of
payments, government finance statistics, and monetary and financial statistics).

AEG recommendations

Number of AEG recommendations for selected issue:

3

Corresponding meeting

Date posted

Recommendation

Jan-Feb 2006

07/04/2006

The AEG noted that the e-discussion had revealed a clear preference for option 1.

July 2005

12/09/2005

The AEG agreed with the definition proposed*. The AEG considered that it should be used as an indicative guideline rather than being prescriptive.The AEG agreed that the valuation basis for NPLs should be a market equivalent valuation. If a fair value figure is not available, an acceptable alternative is nominal value less expected loan losses.The AEG agreed that it would be desirable to have an explanatory presentation in the SNA showing how the memorandum item for stocks of loans and that for flows of interest are connected, even if in practice the memorandum items were shown without the linking information.A term such as “standard item” should be used in the SNA text rather than a more didactic term such as “mandatory” or “compulsory”.The discussion on the treatment of FISIM concluded that there are potential alternative methods that could be used and each of these needs to be documented. Anne Harrison with the help of others volunteered to put together an example for each of the following three scenarios and present them to the AEG for an e-discussion:(a) continue to estimate FISIM on NPLs and allocate to the corresponding borrowers, but consider how unpaid FISIM is recorded in the accounts in such a way as to increment principal outstanding(b) estimate FISIM on interest received (rather than receivable) and on interest payable so that FISIM is not attributed to NPLs(c) estimate FISIM on a basis including NPLs but allocate the whole amount of FISIM only to those borrowers currently servicing their loans.The AEG would like further consideration of how long interest accrues and for how long FISIM is calculated on an NPL.The decision made at the December 2004 AEG meeting to show as standard items NPLs for financial institutions and government as creditors was reconfirmed. They may be shown for other sectors as supplementary items.An extension of the treatment of non-performance on other instruments was considered to be conceptually correct and can be shown as supplementary items.

*/ Essentially that a loan is non-performing when payments of interest and /or principal are past due by 90 days or more, or interest payments equal to 90 days or more have been capitalised, refinanced or delayed by agreement, or payments are less than 90 days overdue but there are other good reasons to doubt that payments will be made in full. For greater elaboration, please refer to the issues paper.

December 2004

11/01/2005

The AEG agreed that loans should continue to be recorded at nominal value for both creditors and debtors. In addition, memorandum items should be shown at market value; these should be mandatory for at least financial institutions and government as creditors.
More clarification is required in respect of:
i. The definition of which loans are non-performing;
ii. The exact nature of the memorandum items (whether market-equivalent value or nominal value less expected provisions for impairment);
iii. A worked example of the accounts showing the memorandum items;
iv. Harmonization of terms used in various manuals;
v. The implications for the recording of FISIM; and
vi. Whether similar treatment should be extended to other financial instruments (in particular trade credits).